“How can filing a chapter seven bankruptcy ‘after’ a foreclosure help me?”
“How can filing a chapter seven bankruptcy ‘after’ a foreclosure help me?”
If you have been foreclosed, then a bankruptcy (any type) will not undo the foreclosure.
But a chapter seven (7) bankruptcy can minimize any further damage to you.
It is not always the right option but it can be a very smart move to make in the right circumstances.
Let’s take a look at this situation.
“I’ve been foreclosed, what other bad things can happen with my house and loan?”
The foreclosure means that now your mortgage company owns your house as 99% of the time your mortgage company will be the high bidder at the foreclosure sale.
Now that your mortgage company owns your house, they may come after you for a deficiency which is where the amount bid on the house is less than what you owed.
For example, if you owed $300,000 and the amount bid and paid for was $200,000.
Then, there is a $100,000 deficiency.
If you owe a deficiency, you have to assume your mortgage company will either collect that debt against you, sue you for the debt, or sell the debt to a debt buyer who will then come after you for the debt.
While we used to not see many deficiencies, and very little collection activities on the deficiencies, now we are seeing more and more deficiencies and more and more collection lawsuits on deficiencies.
“If I owe a deficiency, how can a bankruptcy help?”
Chapter 7 bankruptcy will wipe out your debt, including any deficiencies.
So if you owe $100,000 deficiency, filing for bankruptcy is one way to make that debt go away without having serious tax consequences.
(Normally, if debt is forgiven, you have to pay taxes on it but not on bankruptcy discharged debt.)
Getting rid of the deficiency is the best solution that bankruptcy can offer.
This is because it truly gives you a fresh start.
But if you have been sued for ejectment — sued to kick you out of your house — bankruptcy can be temporarily helpful here also.
“If I’ve been sued for ejectment to kick me out of my house, how does filing a chapter 7 bankruptcy help me?”
After you have been foreclosed, you will be sued for ejectment if you do not leave your home.
While not a permanent solution, filing for chapter 7 bankruptcy will stop, at least for a time, the ejectment lawsuit.
I would not file a bankruptcy just for this purpose but this is a nice, if temporary, bonus to wiping out any deficiency that you owe.
“So, I had a foreclosure, should I file a bankruptcy now or in the future or never?”
For most folks I think you should wait until you know the answers to the following questions:
- Do you owe a deficiency?
- If so, how much is the deficiency?
You can look at the foreclosure deed filed in probate court to find out the purchase/bid price of the foreclosure and then compare that with what the mortgage company said you owed right before the foreclosure.
So, let’s say there is a deficiency.
How much is it? If relatively small you might take your chances and deal with it if it comes up.
But if it is big, you might go ahead and file for bankruptcy.
Ultimately you need to meet with a bankruptcy and foreclosure defense lawyer in Alabama to find out your options in your unique situation.
Give us a call us at 205-879-2447.
Or. you can fill out our online contact form and we’ll be glad to help you think through your options.
Thanks for reading, and have a great day!